What happened

Shares of rare-earth metal miner MP Materials (NYSE:MP) rose a dramatic 35% in December according to data from S&P Global Market Intelligence. But that ending number wasn't the full story, given that at one point in the month the stock was higher by roughly 80%.

In fact, looking at the bigger picture, and as hard as it may be to believe, that 35% gain is almost a bad thing since it represents a 25% drop from the monthly high. But even that's not a full view of what's going on here.

So what

MP Materials produces rare-earth metals, which are key components in the magnets used in electric vehicles (EVs). That's the big story behind the stock, with the company projecting an over 30% compound annual growth rate in the market for EV motor magnets over the next decade or so. But while the company has been around for a while, it only came public in mid-November. So some of the early rise here is likely being driven by the newness of the stock.  

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Image source: Getty Images.

Things get even more complex from there. MP Materials was created via a reverse merger with a special purpose acquisition company (SPAC), also known as a blank check company. Essentially, a company with no business was created for the sole purpose of buying another company with a business.

This isn't as simple as it seems, which became clear in December when MP Materials filed documents with the Securities and Exchange Commission about issuing new shares to deal with warrants from its recent creation and to announce that insiders could be selling a material amount of shares following what turned out to be a very brief lockup period. Both of these situations could create downward pressure on the stock, and investors reacted by selling the shares. 

Now what

As a newly public company, MP Materials has a pretty good story to tell. However, the shares have rallied strongly in a very short period of time. Despite a notable decline from recent highs, they are still up about 90% or so since mid-November. But, notably, the initial excitement here appears to be waning.

Adding to the downward pressure is the potential for insider selling and new shares related to warrants issued when MP Materials was created. Most long-term investors will probably be better off keeping this company on their watch list until it has a longer track record as a public entity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.